Link: http://www.realclearmarkets.com/articles/2010/06/29/paul_krugmans_depression_98545.html

Good article.

Link: http://online.wsj.com/article/SB10001424052748704895204575320922399530274.html

Excellent. Why does the government never turn a critical eye on itself?

Link: http://www.newsweek.com/2010/06/20/word-spill.html

Good article. Makes excellent fun of the stupid cliches they put in presidential speeches. Do they not proofread this stuff? His speechwriter is terrible …

Link: http://nationalaffairs.com/publications/detail/crisis-economics

This article just came out in National Affairs magazine. Greg Mankiw, a Keynesian yet respected macroeconomist who teaches at Harvard (and used to be head of G.W. Bush’s CEA), writes this summary of the Obama stimulus plan, the relative effects of government spending and tax cuts on economic output, and the need for greater humility in the face of economic setbacks (an obvious jab at Paul Krugman, who has lately been pushing for more stimulus).

Mankiw is a super-bright economist, but I still can’t figure why guys like him stick with Keynesian assumptions, especially that most foolish of notions, the fiscal multiplier. The fact that this Double Martingale nonsense is still around (and still taught in intro economics textbooks!) shows that old dogmas die hard and that there is too little integration between business cycle theory and monetary economics. To be fair, Mankiw does uncover a lot of the flaws of old Keynesian thinking, like this bit of disparagement:

There appears to be a growing body of evidence, then, suggesting that taxes may be a better tool for fiscal stimulus than conventional models have indicated.

Why would that be? At this point, there is no clear-cut answer, but it is easy to come up with plausible conjectures. The most obvious candidate would be the supply-side effects of tax cuts. Tax rates, for instance, clearly influence work incentives. And economists who focus on supply-side incentives argue that Keynesians overestimate the importance of aggregate demand while underestimating the role that people’s willingness to work and invest plays in the performance of modern economies.

But even if one believes that aggregate demand drives the economy in the short run, as many Keynesians do, it would still be wise to acknowledge that taxes affect aggregate demand in ways that are not included in the textbook Keynesian model. When we change tax laws, we typically do not just write checks to taxpayers. Usually, we change marginal tax rates — adjusting corporate or personal income taxes, or perhaps instituting tax credits or similar policies to drive incentives in some particular way. These measures have more complicated and nuanced effects on aggregate demand than the textbook Keynesian model assumes. They involve far more than simply changes in cash flow; most notably, they involve changes in marginal incentives, often including direct encouragement to spend.

This is by no means a Copernican revelation: free market economists make this argument at almost every turn. The importance is that Mankiw, seen as a Bush sellout by many Keynesians because he frequently favored (and continues to favor) tax cuts over government spending in Keynesian stimulus plans, makes it clear here that he does so not because of their efficacy as measured by dodo yardsticks like the multiplier, but because of their effects on incentives and the marginal value of what the money is spent on:

If tax cuts indeed make for better fiscal stimulus than direct government spending, they should be broad-based cuts or incentives, rather than narrowly tailored interventions.

It seems that he would agree that the Schedule M tax cuts Obama got through last year and the income tax rebates Bush got through in 2008 were both useless as macroeconomic policy instruments. Government bonds were sold to investors who bought them with the lump sum tax credits/rebates that the bonds financed. No increase in the money supply. Just an increase in debt. No usual incentive boost from cuts in marginal tax rates. Just redistribution from high-end taxpayers to low-end ones, with the obvious costs in incentives there.

When this is realized (or believed) by Keynesian economists, the next step is usually a realization that all Keynesian economics is based on deceit. If you can fool the public and businesses into thinking that the extra deficit spending is real sustainable demand, then they may expand, hire, and spend money themselves. But once you’ve been doing this for seventy some odd years, the deception no longer works. Indeed, in the latest case President Obama and his administration made no effort to hide the fact that the stimulus was not private spending and was completely temporary. They advertised deception for what it was. Good luck convincing businesses to make any lasting investments in capital or labor with that strategy.

Little by little, Keynesians like Mankiw will come around.

Link: http://www.investors.com/NewsAndAnalysis/ArticlePrint.aspx?id=537684

Good one, Krauthammer, like it like it.

Especially this part:

With the liberal (and professorial) conceit that scientific breakthroughs can be legislated into existence, Obama proposes to give us a new industrial economy.

But is this not what we’ve been trying to do for decades with ethanol, which remains a monumental boondoggle, economically unviable and environmentally damaging to boot?

As with yesterday’s panacea, synfuels, into which Jimmy Carter poured billions.

Notice that Obama no longer talks about Spain, which until recently he repeatedly cited for its visionary subsidies of a blossoming new clean energy industry.

That’s because Spain, now on the verge of bankruptcy, is pledged to reverse its disastrously bloated public spending, including radical cuts in subsidies to its uneconomical photovoltaic industry.

“Alternative fuels” and “green jobs” are the biggest shams going. Ask yourself one thing: if any of these alternative sources of energy are any good, why does the government need to be involved? Why do they need subsidies? Because they are inferior. It all comes down to price. Wind power, along with problems of intermittency, is only competitive because it receives twenty dollars per MwH in federal subsidies. Solar energy is almost five times as expensive to produce as coal. Other alternative energies are projected to be similarly expensive if they ever got into widespread use.

It is true that some sources of energy have greater negative externalities than others, as the Gulf oil spill obviously shows. Fine, build the externality into the price. In fact, the oil spill will build itself into the price, since BP will be paying the cleanup and economic impact costs. And other oil companies will be spending an additional (yet optimal!) amount on safety as they weigh their own risks of a costly disaster against the expense of safety precautions.

In his speech on Tuesday night, Obama said, “[T]he one approach I will not accept is inaction.” Actually, the federal government need not do anything. If the correct property rights are respected and BP owns up to its liabilities (notwithstanding the $75 million limit on economic damages that they have conveniently disregarded), private industry will adjust. The idea that the federal government can solve any problem, and that they can do it better than anyone at all has been disproven time and again, not least by this latest spectacle of ineptitude.

Link: http://online.wsj.com/article/SB10001424052748703561604575282190930932412.html?mod=WSJ_Opinion_LEADTop

A nice article by one of the best professors in my Ph.D. program.

Liberals and progressives are just clueless about economics. With results like these, how can anyone trust them with our national economy? This stuff is so basic, too. As Klein says, “Governmental power joined with wrongheadedness is something terrible, but all too common. Realizing that many of our leaders and their constituents are economically unenlightened sheds light on the troubles that surround us.” All too true.